Often, law enforcement has an interest in or may be conducting an independent criminal investigation of a loss that is also the subject of an SIU investigation. In those situations, the SIU investigator may become tempted by the fruits of a promising criminal prosecution. Clearly, the res judicata effect of a criminal judgment is an intoxicating proposition. However, while there is no harm in keeping abreast of the progress of a criminal prosecution, an SIU investigator must not affect the prosecution or play a role in its progress in states that recognize and have a cause of action for bad faith.
In states such as Pennsylvania, bad faith is a statutorily provided remedy for an insured who has been wronged by his carrier. In many states, if not codified by statute, bad-faith claims are recognized as part of common law.
In either situation where a carrier is addressing a claim in which such a cause of action is recognized, the result of a too-cozy relationship with law enforcement can be a judgment of costs, attorney’s fees, and punitive damages in favor of your insured. Therefore, it is essential to maintain the proper level of cooperation with law enforcement. Despite the beguiling allure of the siren’s call, discretion is the order of the day.
As a rule of thumb, it is perfectly appropriate for an SIU investigator to monitor an ongoing criminal investigation. The investigator can partake of any details learned by law enforcement—as long as they are willing to share. Further, subject to the limitation that use of such information will not detrimentally affect the criminal prosecution, the investigator may, in turn, use any such garnered knowledge to further his investigation or even serve as a basis for a claims decision. Additionally, and subject to any applicable immunity laws, the investigator may be called upon to provide the carrier’s file to law enforcement, including the examination under oath transcript. Despite the temptation, the SIU investigator must never attempt to direct the criminal investigation or spur law enforcement to action to the detriment of the insured and, thus, expose the carrier to bad faith.
In situations where the criminal prosecution has borne fruit, it can be easy for the SIU investigator to follow the guiding principle enunciated above. Most investigators have had instances where the actions of law enforcement either broke the case open or provided the basis for a claim denial. These scenarios could involve an insured who waives his claim rather than risk criminal prosecution after being pressured by local law enforcement. Or it could be an insured’s jailhouse recorded conversations that provide proof of intentional destruction of insured property that, in turn, provides the basis for denial. There are also instances in which an insured admits to complicity in loss while being questioned by law enforcement.
Conversely, there are situations in which law enforcement uses the SIU investigator’s findings to bolster its criminal case. In both scenarios, the investigations exist in harmony with, but apart from, one another. Those situations present little angst for the SIU investigator and carrier.
A more difficult dilemma is presented when the SIU investigation points to complicity in the loss by the insured but there is no smoking gun. All avenues of investigation have been exhausted, but the investigation doesn’t quite establish fraud. In other words, the evidence that has been uncovered is not sufficient to overcome the benefit of doubt entitled to an insured. It is at this point that the SIU investigator is most tempted to use the criminal investigation to assist his investigation.
Unfortunately, there are times that, despite the low-hanging fruit that has been provided through the SIU investigation, law enforcement doesn’t reach for the apple. Instead, it is inordinately lethargic and slow to act, not attempting to find suspects, not procuring necessary documents, not requesting that the insured sit for a polygraph, and, in short, not applying pressure on the insured when the facts warrant that it do so. It is in these “close call” situations that the mettle of the SIU investigator and company is most tested.
In these situations, the benefit of the doubt must still be given to the insured. That principle must not be overlooked. In fact, it must be overriding. The complicity of the insured must never be assumed if otherwise unproven. Therefore, despite the temptation, the SIU investigator may not directly attempt to persuade law enforcement to act or to influence the direction of the criminal investigation. Moreover, the company may not “prosecution shop” for a better, more proactive law enforcement agency or department that would apply sufficient pressure to establish fraud. To do any of the aforesaid is to expose the carrier to bad faith.
We are all dedicated to the elimination of fraud or to its detection wherever present. For those of us who approach this pursuit with vigor, the “close cases” are the ones that try our souls. The anguish caused in paying a suspicious claim, however, must never hold sway over the tenets of the proper investigative process, particularly with the risk of a bad-faith suit. In criminal law, a defendant is innocent until proven guilty beyond a reasonable doubt. For purposes of establishing fraud, the bar is not nearly as high. Nonetheless, there is a bar. Simply put, suspicion, in and of itself, does not establish fraud.